|
By Laton McCartney
The recent discovery that Satyam Computer Services Ltd., one of India's largest IT and software development services companies, had inflated its revenue and assets by at least $1 billion may have a far reaching impact on the outsourcing industry.
"The scandal has created serious trust issues regarding the Indian outsourcing model in general and Satyam in particular," notes Gartner analyst Frances Karamouris. "A lot more clients are going to have second thoughts about some of the things they're sending to India after this, as well as the earlier Mumbai attacks."
Karamouris told CIOZone that corporate outsourcing clients may now direct more and more offshore IT work to alternative countries including the Philippines, Brazil, China and Eastern Europe. Satyam's client list spans about 30% of the Fortune 500 including GE, Cisco, Nissan Motor Co., ArcelorMittal, the world's largest steelmaker, and Telstra Corp., Australia's largest telephone company.
Cisco told The New York Times it did not expect any "material impact" from the scandal. Telstra has said publicly that the scandal will be a factor when it carries out a planned elimination of two of its four IT suppliers this year. GE did not reply to emailed inquiries from CIOZone regarding its relations with Satyam. "GE has spent a lot of money with Satyam over what has been a long term relationship" Karamouris says.
Analysts with Religare Hichens Harrison say that other Indian outsourcing companies such as TCS and Infosys will likely attract Satyam customers. On speculation that they will acquire Satyam business, shares of Infosys, TCS and Wipro, all major Satyam competitors, soared on the Bombay Stock Exchange (BSE) Friday, Jan. 9 while Satyam was down more than 80% for the week.
Long term, however, the real benefactors from the Satyam debacle may be IBM and Accenture, US-traded firms that offer a range of offshore IT and technology services and consulting capabilities. "Both are well established companies that have weathered market cycles and are tried and true Western brands." says Karamouris.
Already there are reports of employee defections and a potential cash crisis at Satyam. "With no cash on the balance sheet and significant risk of clients pulling out, the new management will have a huge task" to revive the company, Aniruddha Bhosale, an analyst at Deutsche Bank AG in Mumbai, wrote in a report yesterday. "We have serious concerns about the ability of the new management to keep the company at par with peers."
While other analysts agree that Satyam is facing a steep uphill battle, some doubt that the scandal will have a medium to long-term impact on India's overall IT service and BPO industry. "Following the recent issues regarding Satyam's financial irregularities, India's IT-BPO services industry finds itself under increased financial scrutiny from Wall Street analysts and corporate clients," says Phil J. Fersht
Research Director, Global Business & Outsourcing Services
AMR Research, Inc.
"However, while Satyam has a major challenge ahead to maintain its market position, and is a likely takeover target, we do not believe this fiasco will have longer-term ramifications for the Indian services sector, as long as Satyam's creative accounting turns out to be an isolated incident and not a more pervasive problem across the sector."
What protection do clients have if, worst case, Satyam hasn't the personnel or financial resources to deliver to services for which they're under contract? Most clients, Karamouris says, have a clause in their outsourcing contracts they can invoke if the vendor can't deliver services, in which case the existing contract is null and void.
Satyam today said in order to ensure business continuity it was actively reaching out to global clients; sending assurances to its 53,000 employees and seeking senior management pledges to stay with the company.
Outsourcing and BPO clients and investors will no doubt be watching closely when other Indian outsourcing and BPO giants such as Infosys and Tata announce 3rd quarter earnings this week.
Only registered users can write comments.
Please login or register. |
